1. A businessmen would come across scenarios wherein they would have received supplies from the State’s where they are not registered and the place of supply would also happen to be the said State and not the State where he is registered. As an example, a businessmen registered in Gujarat would book a hotel in Maharashtra for attending a business meeting and pay CGST and Maharashtra SGST on the said booking. Such businessmen would also ensure that the hotel tax invoice carries his Gujarat address as well as GSTIN as per the statutory requirement even though the tax charged is not IGST. Another example can be a situation wherein a businessmen is required to supply a machinery from Gujarat where he is registered to let us say Maharashtra and also carry out the installation work which would render the machinery an immovable property. For carrying out the installation he sub-contracts the said work to a contractor based in Gujarat. Since the place of supply for the contractor services, being directly related to immovable property, shall be Maharashtra, he shall charge IGST showing Maharashtra as place of supply on the invoice in favor of Gujarat businessmen carrying his address and GSTIN. Hence the essential question to answer in both the examples shall be as to whether the Gujarat businessmen can avail the input tax credit (“ITC”) in respect of tax charged by the Maharashtra hotel (CGST as well as Maharashtra SGST) or Gujarat sub-contractor (IGST having place of supply in Maharashtra) ? In our opinion he can avail the complete ITC. For reasons read further.
2. First question to address is under which Act does a registered supplier claim ITC ? To answer that we need to first look at the levy provisions. Levy of tax in the GST regime is on a taxable event called supply. In case of inter-state supply levy is u/s 5(1) of the IGST Act, 2017. In case of intra-state supply there is simultaneous levy u/s 9(1) of the CGST Act, 2017 as well as parallel provisions u/s 9(1) of the concerned SGST Act, 2017. Hence as far as levy is concerned, it is separate under each Act’s. Now whether the claim of ITC is also separate under each Act ? In other words, is it mandatory to claim CGST ITC under CGST Act, 2017, SGST ITC under the respective SGST Act and IGST ITC under the IGST Act as the case may be or can all the ITC be claimed at the option of the registered supplier under any one of the said Act’s ? To answer that we need to consider Sec. 16(1) of the CGST Act, 2017 as well as parallel provisions under the SGST Act, 2017. As far as IGST is concerned, Sec. 20(iv) of the IGST Act, 2017 borrows the provisions of the CGST Act, 2017 (Sec. 16(1) in the present case) for claiming the ITC.
3. Now Sec. 16(1) of the CGST Act, 2017 provides as under:
“(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.”
4. Above provision thus provides that the registered person is entitled to take credit of input tax. “Input tax” has been defined u/s 2(62) of the CGST Act, 2017 as under (relevant portion):
“(62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes —“
5. Further the words “State tax” has been defined u/s 2(104) of the CGST Act, 2017 as follows:
“(104) “State tax” means the tax levied under any State Goods and Services Tax Act;”
6. Thus the above referred definition of “State tax” includes SGST of “any” State and not just the State where the registered supplier is registered.
7. Reading of the above provisions will thus entail that the registered supplier can avail ITC (CGST, any SGST and IGST) u/s 16(1) of the CGST Act, 2017. Further Sec. 41(1) of the CGST Act, 2017 provides that the ITC which the registered supplier is entitled to take (u/s 16(1)) shall be credited to the electronic credit ledger maintained under the CGST Act, 2017 (i.e. CGST credit ledger). Also since the mechanism of matching the ITC has been suspended, said credit shall be construed to be the final credit in the electronic credit ledger. Thus it appears that the registered person can avail ITC of any tax type under the CGST Act, 2017 and not separately under the respective Act’s (i.e. CGST under CGST Act, SGST under respective SGST Act, etc.) and the said amount shall be credited in the CGST credit ledger.
8. Also since IGST Act, 2017 borrows the provisions of the CGST Act, 2017 including the definition of “State tax” as appearing in the CGST Act, 2017 which includes tax under any SGST Act, even the registered person can avail ITC of any tax type under the IGST Act, 2017 and not separately under the respective Act’s (i.e. IGST under IGST Act, SGST under respective SGST Act, etc.) and the said amount shall be credited in the IGST credit ledger.
9. We must also consider parallel provisions under the SGST Act, 2017. Even Sec. 16(1) of the SGST Act, 2017 permits availment of input tax credit. However the definition of “State Tax” under the respective SGST Act, 2017 only refers to the tax under the said Act and not under “any” SGST Act. Hence a view emerges that the registered person if choosing to avail ITC under the State tax cannot avail ITC of the State tax of any other State other than where he is registered.
10. Hence we can observe that the availment of ITC under any of the three Act’s appears to be left to the discretion of the registered person. Under CGST Act, 2017 as well as IGST Act, 2017 ITC can be claimed of any tax including SGST of State’s where he is not registered.
11. We may however reiterate that the above conclusion holds good only in absence of ITC matching mechanism. This is because once the matching mechanism is made operational, Sec. 42 of the respect GST Act’s will not enable claiming of credits of other State’s or IGST having place of supply of other State’s on account of non-matching. However till that happens, we are of the view that ITC of any tax type can be claimed under CGST Act, 2017 or IGST Act, 2017.
12. Now a doubt may emerge in the mind of the reader as to even if the bar of Sec. 16(1) is crossed as discussed supra, can the ITC of other State’s be denied u/s 16(2) on account of non-fulfilment of any of the four stipulated conditions. Let us hence answer even that question.
13. 16(2) of the CGST Act, 2017 (also made applicable to IGST Act, 2017 by virtue of Sec. 20 of the said Act) provides that ITC (which would include any GST as discussed supra) can be claimed subject to four conditions. The first condition relates to the possession of a tax invoice in accordance with Sec. 31 containing required particulars (see Rule 36 read with Rule 46). Now the tax invoice containing SGST of other State or even IGST where place of supply is not the State of the registered supplier would pass the said test on account of the fact that such invoice would contain the name, address, GSTIN of the recipient as well as place of supply. It must be noted that Rule 46 does not bar mentioning of the GSTIN of the recipient even if place of supply is different (in fact it is mandatory to mention GSTIN even if place of supply is different). Hence the tax invoice on the basis of which ITC is to be claimed will satisfy the said first condition.
14. Second condition deals with the fact as to whether the registered supplier intending to claim ITC has received the concerned goods or services. It must be noted that the law has not specified the place where he must receive the goods or services in order to claim ITC. Hence even if the goods or services are received in other State’s, said condition can be said to have been fulfilled.
15. Third condition deals with the actual payment of tax. It may be noted that the said condition do not stipulate that the tax in respect of which ITC is sought must be paid in the coffers of the concerned State or Central Government from whom the credit is to be claimed. As an example claim of SGST credit of other State’s rests on the fact that the actual payment of tax has been made and not on the fact that the Central Government (as the said ITC will be claimed as CGST or IGST) has received the said tax. Hence we submit that the said test can also not debar the claim of ITC of any tax under CGST Act, 2017 or IGST Act, 2017.
16. The fourth condition deals with the filing of return u/s 39. Now as GSTR – 3B, through which ITC is claimed in the electronic credit ledger, is not a return u/s 39, how can any registered person fulfil the said condition for even claiming credit of his concerned State where he is registered ? Hence the said condition will have to be read down to either hold that filing of GSTR – 3B would be enough to satisfy the said condition or to make it otiose.
17. Hence we submit that ITC of any other State’s (CGST, SGST or even IGST) can be claimed under the CGST Act, 2017 or IGST Act, 2017 and hence the same can be credited in the respective CGST or IGST electronic credit ledgers.
18. The above interpretation would also support the intention behind the introduction of GST to “broad base the input tax credit by making it available in respect of taxes paid on any supply of goods or services or both used or intended to be used in the course or furtherance of business” (please see paragraph 5(b) of the Statement of objects and reasons given by Hon. Finance Minister while introducing GST bills before the Parliament).
19. Before we conclude we would also submit that the above conclusions stems from the apparent inconsistencies in the Act’s on account of suspension of GSTR – 1, 2 & 3 matching mechanism (as the Act was formulated keeping the matching mechanism in mind). This is because had the matching been made operational, above view might have to be modified.
20. Thus to conclude, in our two examples given in the first paragraph, registered supplier in question can avail ITC in respect of hotel expense incurred at Maharashtra (both CGST as well as MGST) as well as ITC in respect of IGST wherein the place of supply is not the State where he is registered as the same is indeed for the purpose of his business. He can avail the same under the CGST Act, 2017 as well as IGST Act, 2017 and shall be accordingly credited.